Explaining Heterogeneity in Environmental Management Practice Adoption across Firms

There is extensive academic research examining why firms adopt environmental management practices (EMPs), reflecting an increasing focus on firm environmental activity in research and practice. However, there is little understanding of why firms vary within and across industries in the number of EMPs they adopt (EMP adoption). In this study, we seek to identify the sources of variation and quantify the relative importance of each source. Using Hierarchical Linear Modeling (HLM) and a 12‐year panel data including 880 firms from 258 industries, we show that temporality (variation over time), firm‐specific choices and characteristics, and industry membership account for 40%, 26%, and 34% of the observed variation in EMP adoption, respectively. Additional analysis shows that the explanatory power of each source is contingent on the “type” of EMP adopted; suggesting that approaches to incent increased adoption should be aligned with EMP type. Finally, we identify which specific firm characteristics and industry attributes impact the observed heterogeneity. As the first study to focus on identifying and estimating sources of variation in EMP adoption, it makes a fundamental contribution to theory and practice by showing how annual increases in adoption can be accelerated by better understanding the levers which influence firm‐level EMP adoption decisions.